Today, millions of senior citizens rely on their monthly Social Security benefits to make ends meet. In all possibilities, you will do the same once you retire.
However, the Social Security benefits you believe you are entitled to may not be the amount you ultimately receive. In the event that you apply for benefits early, they will be reduced. Even if you wait until full retirement age to file for Social Security, you may receive a smaller benefit for reasons beyond your control.
Possible Reductions In Social Security Benefits
Social Security faces a shortfall in funding. In the coming years, it is anticipated that the program will owe more in scheduled benefits than it collects in revenue.
Social Security has trust funds that can be utilized for about a decade without resorting to benefit reductions to continue paying out scheduled benefits. However, once these cash reserves are depleted, it is possible that benefits will be reduced.
Currently, if you were an average earner prior to retirement, you can anticipate Social Security to replace approximately 40% of your pre-retirement wages. If benefit reductions are implemented, however, the program will provide you with an even smaller replacement income. And this could make it very challenging for seniors to pay their bills.
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Save As Much As Possible
Perhaps you are currently saving $300 per month for retirement and are on track to finish your career with a respectable nest egg. It may be difficult to set aside more than that for savings purposes. However, given that Social Security cuts are a distinct possibility, you should exert effort to do so.
Suppose you have just begun saving for retirement and are putting aside $300 per month. In 30 years, you should have approximately $408,000 if your investments generate an average annual return of 8%, which is slightly below the average return on the stock market.
However, if you can increase your monthly IRA or 401(k) contributions to $400 per month, you could retire with closer to $544,000, assuming the same savings period and rate of return. This could help adequately compensate for Social Security cuts.
One more alternative to consider? Developing one’s career. If you are able to work for a few additional years, you will have a greater chance to fund and grow your nest egg. In addition, you may be able to enroll in Social Security at a later age, thereby receiving a larger benefit than you would at full retirement age even when accounting for potential cuts.